fbpx
HCR Law Events

23 May 2022

Interpreting reasonable endeavours: an obligation to try

Promises to take ‘reasonable endeavours’, ‘all reasonable endeavours’ or ‘best endeavours’ are commonly seen in commercial agreements. But how are they distinguished and when should they be used?

Endeavours clauses aim to hold the performing party to a pre-defined degree of effort in achieving an objective. They are not absolute and unequivocal requirements to obtain an outcome, but obligations to ‘try’. The key questions for contracting parties when interpreting endeavours clauses is ‘to what extent?’ and ‘for what objective?’.

Reasonable endeavours are commonly used when the objective to be undertaken is not totally within the performing party’s control or there exists an element of conditionality for the obligation to be fulfilled. For instance, where a technology licensing agreement is conditional upon authorisation by a third party, and such authorisation is required for the parties to lawfully contract, a reasonable endeavour may be placed on the performing party to obtain such approval. In this example, the grant of approval by the third party is largely out of either party’s control, but certain obligations may be mandated to ensure the best chances of securing such approval.

Why do endeavours matter?

Endeavours provisions are key in that they are a step below mandatory obligations in contracts which contain language such as ‘must’ and ‘shall’. Failure to meet objectives which are subject to endeavours clauses would not automatically result in breach of contract in the way falling short of mandatory obligations would. Instead, they outline the expectation from the other contracting party and mandate pre-defined effort for fixed objectives whilst considering precarious circumstances.

Understanding common drafting of endeavours obligations:

  • Reasonable endeavours

Reasonable endeavours form the lowest hurdle to performance for the performing party. Case law tells us the courts will look at subjective considerations, for example the cost of a particular course of action. Usually, the performing party needs only undertake one, or the minimal, course of action to have sufficiently met this standard.

  • All reasonable endeavours

All reasonable endeavours require all reasonable paths or actions to be exhausted but are unlikely to require the party to sacrifice its own commercial interests. Determining a ‘reasonable path’ requires assessing whether the action would have had a significant or substantial chance of achieving the desired result.

  • Best endeavours

Best endeavours form the highest and most onerous obligation (short of a mandatory obligation) and require a party to take ‘all those steps in their power which are capable of producing the desired results’. It is worth noting the performing party may be obligated to act against its own commercial and financial interest(s) to achieve the objective in order to meet this standard, however this will usually be considered within the facts of the case.

Key takeaways

For the purposes of interpretation, reasonable endeavours differ from best endeavours in that they do not distinctly require sacrifice of one’s own commercial and financial interests. The difference between reasonable and all reasonable endeavours is admittedly minor; it falls on multiple courses of action being pursued as opposed to one.

Endeavours clauses should be used as a supplement to better define the performance obligation of the performing party. They should not be used in place of factual detail – if there are specific things a counter-party wants the performing party to do, it is better to set those out explicitly in the contract than rely on the uncertainty of interpreting ‘endeavours’ wording.

The contractual context is highly relevant in the interpretation of endeavours clauses and can often lead to uncertain results for the parties. The courts will often look at the operation of the clause in the whole context of the agreement and nature of the parties’ business – taking into account each party’s means to fulfil the obligation and the contractual standard they were held to.

Share this article on social media

About the Author
Nathan Evans, Partner

view my profile email me

Want news direct to you?

sign up


Minimise your risk

show me more

Got a question?

Send us an email

x
Newsletter HCR featured image

Stay up to date

with our recent news

x
LOADING